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EUR/USD: Market, Are You Crazy?
- Throughout the first half of the week, EUR/USD moved sideways along the 0.9700 horizon as markets waited for the release of US inflation data. And it was on Thursday, October 14 that the Department of Labor Statistics of the country published fresh values of the Consumer Price Index (CPI), which exceeded the forecast values. In monthly terms, the September CPI reached 0.6% against the forecast of 0.5%, in annual terms - 6.6% against the forecast of 6.5% and the previous value of 6.3%.
The first reaction of the markets was quite expected. The DXY dollar index soared to 113.94 points (the highest value since September 28, when a 20-year high of 114.79 points was reached), the yield of 10-year treasuries updated a 14-year high, reaching 4.08%, and EUR/USD reached the level 0.9630. Risky asset quotes associated with the dollar by reverse correlation went down. The S&P500 index fell by 2.4% and updated its 2-year low. Dow Jones, Nasdaq and crypto assets behaved in a similar way.
But something extraordinary happened in less than one hour: all the markets, as if going crazy, turned 180 degrees all of a sudden. Moreover, for no apparent reason.
The dollar began to lose its positions rapidly: DXY fell to 112.46, and EUR/USD broke through 0.9800. On the contrary, the S&P500 was positive by the end of Thursday and grew by 2.6%. Analysts cite the strong oversold stock market as the main reason for this change in sentiment and the sharp increase in risk appetites. It is believed that stocks lose about 30% during recessions. At this stage, the S&P500 is down 27.5% during 2022. Therefore, some investors have decided that the bottom has already been reached or will be reached soon, and it is time to start buying. A large number of put options have recently been bought in the US market, on which profit-taking took place, and the freed fiat was used to purchase risky assets.
Despite the events of the past week, market opinion regarding the further increase in interest rates by the US Federal Reserve has not changed. Billionaire investor Ray Dalio has warned that the US will face a "perfect storm" of problems: a combination of debt, political infighting, and conflict abroad. But at the same time, despite the threat of a recession, the Fed will have no other choice to beat inflation.
The market has no doubts that the key rate will be increased by 75 basis points (bp) at the next meeting of the FOMC (Federal Open Market Committee) on November 2. The largest North American financial derivatives market, CME Group, estimates the probability of this at over 90%. Moreover, it is possible that the rate will also increase to 75 bp in December (or, alternatively, by 50 bp in December and another 50 bp in Q1 2023). The peak of the rise is predicted at the level of 4.93-5.00% per annum, and this rate may remain until 2024.
As for Europe, the ECB representative and head of the Slovak Central Bank, Peter Kazimir, recently said that “raising the rate by 75 bps in October is appropriate”. However, this had almost no impression on the market. Economists at Commerzbank still expect the European regulator to raise the rate to only 3.0% by March next year. Thus, it will still be far behind the USD rate.
In addition, the energy crisis and the problems associated with sanctions against Russia due to its invasion of Ukraine will also continue to put pressure on the common European currency. According to analysts at Commerzbank, the euro will start to recover only when investors bet more and more on the end of the crisis next year. In the meantime, they write, “a decisive tightening of monetary policy and a remarkably strong US economy make the US dollar the favorite currency of international investors.”
Thus, EUR/USD in the short term is still aimed south. And according to the forecasts of DBS Bank strategists, if it breaks through the important support level just below 0.9600, it may fall into the range of 0.8270-0.9500, which was observed in 2000-2002.
Following the release of September US Retail Sales and the University of Michigan Consumer Sentiment Index, the EUR/USD pair was trading in the 0.9750 zone at the time of writing the forecast on Friday evening, October 14. 55% of analysts support the fact that it will continue to move south in the near future, another 35% expect it to move north, and the remaining 10% vote for a sideways trend. Among the trend indicators on D1, 90% are red and 10% are green. The picture is quite different among the oscillators: only 40% of them advise selling the pair, 15% are in favor of buying, and 55% have taken a neutral position.
The immediate support for the EUR/USD is at 0.9700, followed by 0.9670, 0.9630, 0.9580 and finally the September 28 low at 0.9535. The next target of the bears is 0.9500. The resistance levels and targets of the bulls look like this: 0.9800-0.9825, 0.9900, the immediate task is to return to the range of 0.9950-1.0020, the next target area is 1.0130-1.0200.
The upcoming week's calendar highlights Tuesday October 18, when the German ZEW Economic Sentiment Index is released. The Consumer Price Index (CPI) of the Eurozone will be known. And there will be data on manufacturing activity and the housing market in the US on Thursday, October 20.
GBP/USD: UK Changes Course
- In general, the GBP/USD chart was similar to the EUR/USD chart last week, except for the volatility. The local minimum was fixed at the level of 1.0922, the maximum - 1.1380, thus the range of fluctuations for the five-day period amounted to more than 450 points.
The statistics on the UK economy released this week looked mixed. Friday, October 14, was the key day, when Prime Minister Liz Truss fired Treasury Secretary Quasi Kwarteng. Now, after this event, the markets are awaiting details about the country's upcoming mini budget. Former British Foreign Secretary Jeremy Hunt has been appointed as the new Chancellor of the Exchequer, and Liz Truss has announced a dramatic change in fiscal policy. However, this has not helped the British currency much so far: it was in the 1.1200 area at the end of the working week.
As for the median forecast, here the majority of analysts (75%) side with the bears, 25% have taken a neutral position, while the number of supporters of the strengthening of the pound is 0. Among the oscillators on D1, the ratio is 60% to 40% in favor of the reds. Among the trend indicators, only 15% are colored red, 40% are green, and the remaining 45% are neutral gray.
The nearest levels and support zones are 1.1100, 1.1055, 1.0985-1.1000, 1.0925. This is followed by 1.0500-1.0740 and the September 26 low of 1.0350. When the pair moves north, the bulls will meet resistance at the levels of 1.1300, 1.1350, 1.1400, 1.1470, 1.1500, 1.1610, 1.1720, 1.1800 and 1.1960.
Regarding the release of UK macro statistics, the Consumer Price Index (CPI) will be released on Wednesday, October 19, as in the Eurozone, and UK retail sales for September will be announced on Friday, October 21.
CRYPTOCURRENCIES: How Much Will BTC Be Worth on October 9, 2024?
- The crypto market was relatively quiet until Thursday October 13. The BTC/USD pair, despite the downward pressure, looked quite stable, holding positions around $19,000. However, it flew down after the values of the US Consumer Price Index (CPI) became known, following the stock indices S&P500, Dow Jones and Nasdaq. However, it never reached the June 19 low of $17,940, and having found a local bottom at $18,155, it then went up sharply, following the stock indices. At the time of writing this review, on the evening of Friday, October 14, the pair is trading in the $19.375 zone.
According to Amsterdam Stock Exchange trader Michael van de Poppe, bitcoin price volatility will increase in the second half of October. The US inflation data, along with the latest data on retail sales and labor market dynamics, will have a strong impact on both Wall Street and the cryptocurrency market. The next important point will be early November, when the Fed is likely to raise the benchmark interest rate by 0.75%. Based on this, JP Morgan strategists predict a new collapse of the S&P500 index, by about another 20%. Thus, the unrealized loss of those who invested in the shares of the 500 largest US companies at the beginning of 2022 could exceed 44%. However, many crypto investors hope that, as in the case of the recent crisis in the UK, bitcoin will play the role of digital gold this time and will not collapse after other assets. It will become clear in the foreseeable future whether these hopes will come true.
If we look at the latest analysts' forecasts by color, the palette is as follows: short-term forecasts are dark black, medium-term forecasts are gray, and long-term forecasts are sky blue.
Among the dark blacks, this time, let's highlight the scenario of Zack Voell, who is a mining analyst at Braiins. He has recently shared a model that reflects BTC's price performance in previous bearish cycles. Zach Voell studied the behavior of quotes in all past periods between highs and lows, on the basis of which he predicted a fall in the BTC rate to $13,800.
The analyst emphasized that he studied the behavior of the bitcoin price in 2011, then in 2013-2015 and 2017-2018, as well as during the current cycle, which began in November 2021. According to him, the value of the cryptocurrency lost more than 80% of its peak values the last two times. If history repeats, the rate will fall to at least this mark and may even go lower. He noted among other things that the bearish cycle of 2011 led to a drop in the value of BTC by as much as 95%. However, this happened when the cryptocurrency was practically unknown to anyone and was not on the way to mass adoption.
Voell also noted that despite the negative sentiment, bitcoin was the most profitable asset in Q3 2022. Digital gold has shown extreme stability in the past months. (Apart from BTC, according to statistics published by NYDIG, only precious metals and fiat USD turned out to be profitable in Q3).
Now let's talk about what may happen in the last, Q4 2022. Mike McGlone, senior strategist at Bloomberg Intelligence, predicted a rise in the bitcoin price by the end of 2022. Digital gold and ethereum tend to outperform most major assets during economic downturns. Therefore, McGlone called the increase in interest rates by Central banks “a strong tailwind.” He noted that October has been the best month for bitcoin since 2014. At the same time, the analyst believes that ethereum's transition to the Proof-of-Stake consensus algorithm can help ETH and BTC gain a foothold above the $1,000 and $20,000 levels, respectively.
Such levels for ethereum and bitcoin will certainly not impress investors. Therefore, this forecast of the Bloomberg Intelligence strategist can be classified as neutral gray. Then move on to sky blue scenarios.
Paul Tudor Jones, a trader and founder of the Tudor Investment Hedge Fund, said in an interview with CNBC that he continues to hold a position in the first cryptocurrency. According to the influencer, the first and second most capitalized cryptocurrencies will be valuable “at some point” because of too much money.
That moment, according to Raoul Pal, could come when the Fed retreats from its plans to fight inflation by tightening monetary policy. This Real Vision founder and former Goldman Sachs chief executive said that the macroeconomic background is beginning to look attractive for investing in cryptocurrencies. Many investors are now in a state of extreme fear, fearing that the global financial system will soon collapse. And this could be a growth catalyst for risky assets like bitcoin and altcoins.
According to the businessman, investors are very negative and are playing it safe. Previously, the market had incredibly high amounts of investments, but the market does not work now, as sellers predominate over buyers. This situation may encourage the Fed to relax its monetary policy.
“There is currently no liquidity on the market, as only sellers are left there. I think this will cause huge problems in the future. Ultimately, businesses will demand more money to be issued and the situation on the market to be changed,” said Raul Pal. So once Central banks start printing money again, assets like bitcoin and altcoins will rise. “This is a sad state of affairs, but this is the real situation,” says the financier. “You will be able to see when the shift comes and use it to your advantage by investing in cryptocurrencies.”
A popular crypto analyst known as Dave the Wave accurately predicted the bitcoin crash in May 2021. He believes now that if bitcoin equals gold in the long term in market capitalization, this will be equal to an increase in its price by about 40 times. According to the expert, this global goal can be achieved within two decades.
The rainbow price chart of the Blockchain Center looks no less optimistic. (It differs somewhat from our forecast). It shows how past price statistics can help predict the future behavior of an asset. In the long term, the graph indicates that bitcoin could reach a six-figure value of $626,383 by October 9, 2024. The flagship cryptocurrency will reach the “maximum bubble territory” then, marked in dark red.
Additionally, the chart indicates that the current crypto winter may have bottomed out. It is noteworthy that bitcoin's current price is estimated to be in the “Main Sale” zone (marked in blue). Ahead of another bull run, the rainbow chart also shows that bitcoin’s “HODL” status will take effect at the end of the year when the asset trades at $86,151.
The color bars follow a purely logarithmic regression, which has no scientific basis. In addition, the bands have been adjusted to match past periods in the better way. However, the chart creators note that this is at least an interesting way to look at the potential future profitability of the main cryptocurrency.
At the time of writing, the total crypto market capitalization is $0.927 trillion ($0.946 trillion a week ago). The Crypto Fear & Greed Index has climbed 1 point in seven days from 23 to 24 and is still in the Extreme Fear zone.
NordFX Analytical Group
Notice: These materials should not be deemed a recommendation for investment or guidance for working on financial markets: they are for informative purposes only. Trading in financial markets is risky and can result in a complete loss of deposited funds.